Two Indian companies to pick up over 26% but less than 51% stake in ISMC

Next Orbit director refuses to divulge names though talks were reportedly on with HCL, Reliance Industries

SMC, a consortium led by Mumbai-based investment company Next Orbit, one of the three players to have applied to the government for setting up a fabrication plant, has rejigged its shareholding structure. It will now include two Indian companies, which will have more than 26 per cent but less than 51 per cent stake in the venture.

Elaborating on the shareholding structure, which it has submitted to the government, Next Orbit Director Ajay Jalan said: “We will now have four investors: Tower Semiconductor of Israel, our technology partner that will take 10-15 per cent stake (it has been bought over by Intel recently); the two Indian companies that will have more than 26 per cent but less than 51 per cent stake; and the balance will be with us. There has been no change in products, which we will manufacture, or in the total capacity of production.”

Jalan, however, refused to divulge the names of the two Indian corporations, saying that they are under a non-disclosure agreement though there have been reports that discussions were on with HCL and Reliance Industries, apart from some others.

He also added that while many defence public sector undertakings (PSUs) had shown interest in picking up equity, they have not been able to accommodate them. Earlier, the company was also scouting for equity from West Asian sovereign funds like Mubadala to join the project but dropped the plan.  

The rejigging of the shareholding was done after the government made significant changes in the semiconductor incentive scheme by offering 50 per cent of the cost of building the plant across all nodes of chips. Earlier, while lower nodes were offered 50 per cent, the upper nodes, which companies like ISMC are concentrating on, were offered 30 per cent of the cost of investment.    

Jalan says that their term sheet has provided the names of all shareholders to the government. “It’s a standard investment process, followed by a share purchase agreement after government approvals, and then the money comes to the company,” he says.

“A semiconductor plant,” he points out, “has to be handheld till its execution, and procedures need to be tweaked to enable that. We are the only one with a production-grade technology partner.”  

ISMC will be investing $3 billion to set up a wafer plant with a capacity of making 40,000 wafers a month to begin with. The plant will initially make 65-nanometre analog chips, going down to 45-nanometre ones. In the second phase, it is looking at setting up a plant to manufacture chips of 22 nanometre and below; and eventually, a memory chip plant for $5 billion, with the total investment adding to $10 billion.

As part of the plan, the shareholders will fund 30 per cent of the project cost through a combination of debt and equity. The rest will be through government and state subsidies. The company has signed up with the Karnataka government to set up the plant.  

ISMC, of course, will face competition from other two contenders. Vedanta-Foxconn, which will be making chips of 28 nanometre and above in Gujarat with a buyback arrangement from the Taiwanese company. Singapore-based IGSS has also signed a memorandum of understanding (MoU) to set up a plant in Tamil Nadu and has roped in an IDM player in the US for technology to make chips. 

Shareholding tweaks

• Defence PSUs and sovereign funds of West Asia excluded as shareholders after discussions
• Except for Tower Semiconductor of Israel (recently bought over by Intel), no foreign investor in the project
• Two Indian corporates to pick up stake
• Balance equity would be with Next Orbit
• Shareholders to fund 30% of the project cost through a combination of debt and equity. Rest through central and state incentives